Thousands of players interact in online role playing games. Assets are created within the games (think of a magic sword stolen from a troll's hoard), and these contribute to a player's status and success.
Markets have sprung up in the real world, where players can buy or sell these electronic game assets.
Edward Castronova of Indiana University has made his name studying the interaction between the virtual economies in the games, and the real economies outside. Clive Thompson reports on Castronova's work his article Game Theories (The Walrus):
Edward Castronova had hit bottom. Three years ago, the thirty-eight-year-old economist was, by his own account, an academic failure. He had chosen an unpopular field — welfare research — and published only a handful of papers that, as far as he could tell, "had never influenced anybody." He'd scraped together a professorship at the Fullerton campus of California State University, a school that did not even grant Ph.D.s. He lived in a lunar, vacant suburb. He'd once dreamed of being a major economics thinker, but now faced the grim sense that he might already have hit his plateau. "I'm a schmo at a state school," he thought. And since his wife worked in another city, he was, on top of it all, lonely.
To fill his evenings, Castronova did what he'd always done: he played video games. In April, 2001, he paid a $10 monthly fee to a multiplayer on-line game called EverQuest. More than 450,000 players worldwide log into EverQuest's "virtual world." They each pick a medieval character to play, such as a warrior or a blacksmith or a "healer," then band together in errant quests to slay magical beasts; their avatars appear as tiny, inch-tall characters striding across a Tolkienesque land. Soon, Castronova was playing EverQuest several hours a night.
Then he noticed something curious: EverQuest had its own economy, a bustling trade in virtual goods. Players generate goods as they play, often by killing creatures for their treasure and trading it...
Things got even more interesting when Castronova learned about the "player auctions." EverQuest players would sometimes tire of the game, and decide to sell off their characters orvirtual possessions at an on-line auction site such as eBay. When Castronova checked the auction sites, he saw that a Belt of the Great Turtle or a Robe of Primordial Waters might fetch forty dollars; powerful characters would go for several hundred or more. And sometimes people would sell off 500,000-fold bags of platinum pieces for as much as $1,000...
In 2001, Castronova prepared a paper calculating - somewhat tongue in cheek - that the GNP per capita in one virtual world was above the GNP per capita in Bulgaria, but below that in Russia (Virtual Worlds: A First-Hand Account of Market and Society on the Cyberian Frontier). Here's the abstract:
In March 1999, a small number of Californians discovered a new world called Norrath, populated by an exotic but industrious people. About 12,000 people call this place their permanent home, although some 60,000 are present there at any given time.
The nominal hourly wage is about USD 3.42 per hour, and the labors of the people produce a GNP per capita somewhere between that of Russia and Bulgaria. A unit of Norrath's currency is traded on exchange markets at USD 0.0107, higher than the Yen and the Lira. The economy is characterized by extreme inequality, yet life there is quite attractive to many. The population is growing rapidly, swollen each each day by hundreds of emigres from various places around the globe, but especially the United States.
Perhaps the most interesting thing about the new world is its location. Norrath is a virtual world that exists entirely on 40 computers in San Diego. Unlike many internet ventures, virtual worlds are making money -- with annual revenues expected to top USD 1.5 billion by 2004 -- and if network effects are as powerful here as they have been with other internet innovations, virtual worlds may soon become the primary venue for all online activity.
This paper got a lot of attention.
Now, Castronova has a book, published by the University of Chicago Press (Synthetic Worlds : The Business and Culture of Online Games ). The Economist has reviewed it (Online Gaming. Worlds without end (Dec 14):
...In particular, real-world trade of in-game items—swords, gold, potions, or even whole characters—is flourishing in online marketplaces such as eBay. This means in-game items and currency have real value... by “working” in the game to generate virtual wealth and then selling the results for real money, it is possible to generate about $3.50 per hour. Companies in China pay thousands of people, known as “farmers”, to play MMORPGs [“massively multiplayer online role-playing games” - Ben] all day, and then profit from selling the in-game goods they generate to other players for real money.
Land and other in-game property has been sold for huge sums: one “Project Entropia” player paid $26,500 for an island in the game's virtual world last year, and has already made his money back by selling hunting and mining rights to other players. Trade in virtual items is now worth more than $100m each year. In some Asian countries, where MMORPGs are particularly popular, in-game thefts and cheats have led to real-world arrests and legal action. In one case in South Korea, the police intervened when a hoard of in-game money was stolen and sold, netting the thieves $1.3m. In-game money is, in short, no less real than the dollars and pounds stored in conventional bank accounts.
These on-line economies tend to be inflationary:
Virtual economies are an integral part of synthetic worlds. The buying and selling of goods, as the game's inhabitants go about their daily business, lends realism and vibrancy to the virtual realm. But in-game economies tend to be unusual in several ways. They are run to maximise fun, not growth or overall wellbeing. And inflation is often rampant, due to the convention that killing monsters produces a cash reward and the supply of monsters is unlimited in many games. As a result, the value of in-game currency is constantly falling and prices are constantly rising.
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